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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For The Fiscal Year Ended June 30, 1997
Commission File No. 1-2299
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-0117420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Applied Plaza, Cleveland, Ohio 44115
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common Stock without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, computed by reference to the price at which
the common equity was sold as of the close of business on August 29, 1997:
$560,142,816.
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 29, 1997
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Common Stock without par value 14,680,016
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by
reference, and the Parts of this Form 10-K into which such portions are
incorporated:
(1) Applied Industrial Technologies, Inc. 1997 Annual Report to
shareholders for the fiscal year ended June 30, 1997, portions of
which are incorporated by reference into Parts I, II and IV of this
Form 10-K; and,
(2) Applied Industrial Technologies, Inc. Proxy Statement dated
September 15, 1997, portions of which are incorporated by reference
into Parts III and IV of this Form 10-K.
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PART I.
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ITEM 1. BUSINESS.
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Applied Industrial Technologies, Inc. ("Applied"), directly and through
its wholly owned operating subsidiaries, is engaged in the business of selling
and distributing bearings, mechanical and electrical drive system products,
industrial rubber products, fluid power products and specialty maintenance and
repair products manufactured by others. Applied and its predecessor companies
have been engaged in this business since 1923. Applied was incorporated pursuant
to the laws of Delaware in 1928 and reincorporated from Delaware to Ohio in
1988. Applied, formerly known as Bearings, Inc., adopted its current name as of
January 1, 1997.
(a) General Development of Business.
--------------------------------
Effective January 1, 1997, Applied changed its name from Bearings, Inc.
The new identity reflects the widening range of products and services offered by
Applied. Concurrently with the name change, two subsidiaries, King Bearing, Inc.
and Bruening Bearings, Inc., were merged into Applied.
In September 1996, Applied opened a new 155,000 square foot
distribution center in Douglas County, Georgia, replacing the former facility in
that area. In addition, a new 127,000 square foot distribution center opened in
May 1997 in Fort Worth, Texas, replacing the previous Fort Worth facility.
Applied also completed construction of its new 145,000 square foot headquarters
facility in Cleveland's Midtown Corridor. The complex opened in June 1997 and
replaced Applied's previous headquarters complex of five buildings spread over
three blocks in the Midtown Corridor.
On July 31, 1997, Applied acquired INVETECH Company ("Invetech"), a
privately held distributor of industrial components, for approximately 2.1
million shares of Applied Common Stock and $23.4 million in cash. Invetech,
together with its subsidiaries, American Bearing and Power Transmission, Inc.
and Moore Bearing Company, had approximately 980 employees and revenues of $321
million in the 12 months ended June 30, 1997. All Invetech locations will
operate under the Applied Industrial Technologies identity by December 31, 1997.
Following the acquisition, Applied operates branches in 44 states.
Further information regarding developments in Applied's business can be
found in Applied's 1997 Annual Report to shareholders under the caption
"Management's Discussion and Analysis" on pages 10 and 11, which is incorporated
herein by reference.
(b) Financial Information about Industry Segments.
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Applied considers its business to involve only one industry segment.
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(c) Narrative Description of Business.
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Products. Applied engages in the distribution and sale of ball, roller,
mounted, plane and linear type bearings, mechanical and electrical drive system
products, industrial rubber products, fluid power products and specialty items
used in connection with the foregoing such as seals, lubricants, locking
devices, sealing compounds, adhesives and maintenance tools. Although Applied
does not generally manufacture the products that it sells, it does assemble
filter carts, fluid power components, hydraulic power units, hydraulic and
pneumatic cylinders, speed reducers and electrical panels, modify conveyor belts
and rebuild precision machine tool spindles.
Applied is a non-exclusive distributor for numerous manufacturers of
the products that it sells. The principal bearing lines distributed by Applied
are: American, Barden, Cooper, FAG, Heim/RBC, INA, Kaydon, MB Manufacturing,
McGill, MRC, Sealmaster, SKF, Symmco, Thomson, Timken and Torrington/Fafnir. The
principal drive system product lines distributed by Applied are: Baldor, Boston
Gear, Browning, Falk, Foote Jones, Jeffrey, Kop-Flex, Lovejoy, Martin, Morse,
Reliance/Dodge, Rexnord/Link-Belt, Saftronics, Sumitomo, U.S. Electrical Motors,
and Winsmith. The principal industrial rubber product lines distributed by
Applied are Aeroquip, Boston, Dixon, Flexco, Gates, Goodyear, Habasit and
Weatherhead. The principal fluid power product lines distributed by Applied are
Dana, Denison, Donaldson, Eaton Char-Lynn, Ingersoll Rand-ARO and Schrader
Bellows. Specialty items, including seals, sealants, fluid sealing, "O" rings,
retaining rings, adhesives, lubricants, maintenance equipment, skin care
products and tools, are purchased from various manufacturers. The principal
specialty item lines distributed by Applied are CR Industries, Dow Corning,
Garlock, Gojo, Keystone, Loctite, Lubriplate, National/Federal Mogul, OTC/Power
Team, Parker Hannifin, Rotor Clip and Skil/Bosch. Applied believes that its
relationships with its suppliers are generally good and that Applied can
continue to represent these suppliers. The loss of certain of these suppliers
could have an adverse effect on Applied's business.
Based on Applied's analysis of product dollar sales volume for the
fiscal year ended June 30, 1997, bearings represented 41%, drive system products
represented 31%, specialty items represented 12%, and other items, including
industrial rubber and fluid power products, represented 16% of sales. For the
year ended June 30, 1996, bearings represented 43%, drive system products
represented 30%, specialty items represented 11%, and other items, including
industrial rubber and fluid power products, represented 15% of sales. For the
year ended June 30, 1995, bearings represented 45%, drive system products
represented 30%, specialty items represented 12%, and other items, including
industrial rubber and fluid power products, represented 13% of sales.
Applied rebuilds precision machine tool spindles at its Spindle Lab in
Cleveland, Ohio. Mechanical shops located in Corona, California; Tracy,
California; Atlanta, Georgia; Florence, Kentucky; Worcester, Massachusetts; Iron
Mountain, Michigan; Butte, Montana; Charlotte, North Carolina; Cleveland, Ohio;
Carlisle, Pennsylvania; Ft. Worth, Texas; and Longview, Washington rebuild and
assemble speed reducers, pumps, valves, cylinders and hydraulic motors, provide
custom machining and assemble electrical panels and fluid power systems to
customer specifications. Fluid power centers located in Corona, California;
Tracy, California; Baltimore, Maryland; Worcester,
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Massachusetts; Maryland Heights, Missouri; Limerick, Pennsylvania; Richmond,
Virginia; and Kent, Washington assemble fluid power systems and components and
provide customers with technical expertise. Applied also operates rubber shops
in Tucson, Arizona; Corona, California; Tracy, California; Atlanta, Georgia;
Crestwood, Illinois; Dayton, New Jersey; Fort Worth, Texas; Longview,
Washington; and Appleton, Wisconsin to modify conveyor belts and provide hose
assemblies in accordance with customer requirements. Shops and centers are
shown as of June 30, 1997.
Services. Applied's sales personnel advise and assist customers with
respect to product selection and application. Applied considers this advice and
assistance to be an integral part of its overall sales efforts. Beyond acting as
a mere distributor, Applied markets itself as a "single-source" applied
technology supplier, offering product and process solutions involving multiple
product technologies, which solutions reduce production downtime and overall
procurement and maintenance costs for customers. By providing a high level of
service, product knowledge and technical support, while at the same time
offering competitive pricing, Applied believes it will develop closer,
longer-lasting and more profitable relationships with its customers.
Applied's sales personnel consist of inside customer service and field
account representatives assigned to each Applied branch, in addition to
representatives assigned as industry and product specialists. Inside customer
service representatives receive, process and expedite customer orders, provide
pricing and product information, and assist field account representatives in
servicing customers. Field account representatives make on-site calls to
customers and potential customers to provide product and pricing information,
make surveys of customer requirements and recommendations, and assist in the
implementation of maintenance programs. The representatives will measure and
document for a customer the value to the customer of the services and advice
Applied provides, through cost savings or increased productivity. Specialists
assist with applications particular to their areas of technical expertise.
Applied maintains inventory levels in each branch that are tailored to
meet the immediate needs of its customers and maintains back-up inventory in its
distribution centers, thereby enabling customers to minimize their own
inventories. These inventories consist of certain standard items stocked at most
branches as well as other items related to the specific needs of customers in
the particular locale. As a result, the business of each branch is concentrated
largely in the geographic area in which it is located.
Timely delivery of products to customers is an integral part of
Applied's service. Branches and distribution centers utilize the most effective
method of transportation available to meet customer needs including both surface
and air common carrier and courier services. Applied also maintains a fleet of
vehicles to deliver products to customers. These transportation services and
delivery vehicles are also used for movement of products between suppliers,
distribution centers and branches to assure availability of merchandise for
customer needs.
Applied's ability to serve its customers is enhanced by its
computerized inventory and sales information systems. Applied's point-of-sale
OMNEX (R) 2.0 computer system gives each Applied location on-line access to
inventory, sales analysis and data. Inventory and sales information is updated
as transactions are entered. The system permits direct access for order entry,
pricing and price
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auditing, order expediting and back order review. Applied's computer system also
permits Electronic Data Interchange (EDI) with participating customers and
suppliers.
Applied's operations contrast sharply with those of manufacturers whose
products it sells in that the manufacturers generally confine their direct sales
activities to large-volume transactions with original equipment manufacturers
who incorporate the components purchased into the products they make. The
manufacturers generally do not sell replacement components directly to the
customer but refer the customer to Applied or another distributor. There can be
no assurance that this practice will continue, however, and any discontinuance
of this practice could have an adverse effect on Applied's business.
There is a trend among large industrial customers towards reducing the
number of suppliers of maintenance and replacement products with whom they deal.
Applied is responding to this trend by, among other things, continuing to
broaden its product offering and developing new methods for marketing its
products, such as through various integrated supply channels. There can be no
guarantee, however, that this trend will not have an adverse effect on Applied's
business.
Patents, trademarks and licenses do not have a significant effect on
Applied's business.
Markets and Methods of Distribution. Applied purchases from over 100
major suppliers of bearings, drive system products, industrial rubber products,
fluid power products and specialty items and resells to a wide variety of
industries, including industrial machinery, forest products, primary metals,
agriculture and food processing, chemical processing, transportation, mining,
textiles and utilities. Its customers range from the largest industrial concerns
in the country to the smallest. Applied's business is not significantly
dependent upon a single customer or group of customers, the loss of which would
have a material adverse effect upon Applied's business as a whole, and no single
customer of Applied accounts for more than 3% of Applied's net sales.
At June 30, 1997, Applied had 331 branches in 42 states. Applied has no
operations outside the continental United States.
Applied's export business during the fiscal year ended June 30, 1997
and prior fiscal years was less than 2% of net sales, and is not concentrated in
any one geographic area.
Competition. Applied considers its overall business to be highly
competitive. In addition, such markets present few economic or technological
barriers to entry. Applied's principal competitors are other specialized
bearing, drive system product, industrial rubber product, fluid power and
specialty item distributors, and, to a lesser extent, mill supply houses. These
competitors include single and multiple branch operations, some of which are
divisions or subsidiaries of larger organizations that may have greater
financial resources than Applied. There is a trend in the industry toward larger
multiple branch operations. Applied also competes with the manufacturers of
original equipment and their distributors in the sale of maintenance and
replacement bearings, power transmission components and related items. Some of
these manufacturers may have greater financial resources than Applied. The
identity and number of competitors vary throughout the geographic areas in which
Applied does
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business. Applied continues to develop and implement marketing strategies to
maintain a competitive position.
Applied is one of the leading distributors of replacement bearings,
drive system products, industrial rubber products, fluid power products and
specialty items in the United States, but Applied's share of the market for
those products is relatively small compared to the portion of that market
serviced by original equipment manufacturers and other distributors. Applied may
not be the largest distributor in each of the geographic areas in which a branch
is located.
Backlog and Seasonality. Applied does not have a substantial backlog of
orders and backlog is not significant in the business of Applied since prompt
delivery of the majority of Applied's products is essential to Applied's
business. Applied does not consider its business to be seasonal.
Raw Materials and General Business Conditions. Applied's operations are
dependent upon general industrial activities and economic conditions and would
be adversely affected by the unavailability of raw materials to its suppliers,
prolonged labor disputes experienced by suppliers or customers, or by any
prolonged recession or depression that has an adverse effect on American
industrial activity generally.
Number of Employees. On June 30, 1997, Applied had 4,101 employees.
Applied considers its relationship with its employees to be generally favorable.
Working Capital. Applied's working capital position is disclosed in the
financial statements referred to at Item 14 on page 13 of this Report and is
discussed in "Management's Discussion and Analysis" set forth in Applied's 1997
Annual Report to shareholders on pages 10 and 11.
Applied requires substantial working capital related to accounts
receivable and inventories. Significant amounts of inventory are carried to meet
rapid delivery requirements of customers. Applied generally requires all
payments for sales on account within 30 days and generally customers have no
right to return merchandise. Returns are not considered to have a material
effect on Applied's working capital requirements. Applied believes that such
practices are consistent with prevailing industry practices in these areas.
Environmental Laws. Applied believes that compliance with federal,
state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment will not
have a material adverse effect upon capital expenditures, earnings or
competitive position of Applied.
(d) Financial Information about Foreign and Domestic Operations and
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Export Sales.
- ------------
Applied has no operations outside the continental United States.
Applied's export business during the fiscal year ended June 30, 1997, and prior
fiscal years, was less than 2% of net sales, and is not concentrated in any one
geographic area.
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(e) Cautionary Statement under Private Securities Litigation Reform
---------------------------------------------------------------
Act.
- ---
This report, including the documents incorporated by reference, may
contain statements that are forward-looking, as that term is defined by the
Private Securities Litigation Reform Act of 1995 or by the Securities and
Exchange Commission in its rules, regulations and releases. Applied intends that
such forward-looking statements be subject to the safe harbors created thereby.
All forward-looking statements are based on current expectations regarding
important risk factors. Accordingly, actual results may differ materially from
those expressed in the forward-looking statements, and the making of such
statements should not be regarded as a representation by Applied or any other
person that the results expressed therein will be achieved.
Important risk factors include, but are not limited to, those
identified in "Narrative Description of Business", above, and the following:
changes in the economy; changes in customer procurement policies and practices;
changes in product manufacturer sales policies and practices; the availability
of product; changes in operating expenses; the effect of price increases; the
variability and timing of business opportunities including acquisitions,
customer agreements, supplier authorizations and other business strategies;
Applied's ability to realize the anticipated benefits of acquisitions; the
incurrence of additional debt and contingent liabilities in connection with
acquisitions; changes in accounting policies and practices; the effect of
organizational changes within Applied; adverse results in significant litigation
matters; adverse state and federal regulation and legislation; and the
occurrence of extraordinary events (including prolonged labor disputes, natural
events and acts of God, fires, floods and accidents).
ITEM 2. PROPERTIES.
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Applied owns or leases the properties in which its offices, branches,
distribution centers, shops and corporate facilities are located. As of June 30,
1997, the real properties at 172 locations were owned by Applied, while 175
locations were leased by Applied. Certain property locations may contain
multiple operations, such as a branch and a distribution center.
The principal real properties owned by Applied (each of which has more
than 20,000 square feet of floor space) as of June 30, 1997 are: the Atlanta
Distribution Center, mechanical shop and rubber shop in Atlanta, Georgia; the
Midwest Distribution Center and mechanical shop in Florence, Kentucky; the
Prospect mechanical shop in Cleveland, Ohio; the Portland Distribution Center
and rubber shop in Portland, Oregon; and the John R. Cunin Distribution Center
and mechanical shop in Carlisle, Pennsylvania. In addition, Applied intends to
sell its remaining former corporate headquarters office buildings and the
Cleveland East branch in Cleveland, Ohio (which branch was relocated in
September 1997). The principal real properties leased by Applied (each of which
has more than 20,000 square feet of floor space) as of June 30, 1997 are: the
new corporate headquarters facility in Cleveland, Ohio; the Corona Distribution
Center, offices, mechanical shop and rubber shop in Corona, California; the Long
Beach branch in Long Beach, California; the San Jose branch in San Jose,
California; the Tracy fluid power shop, rubber shop and mechanical shop in
Tracy, California; the Worcester branch and mechanical shop in Worcester,
Massachusetts; the Portland branch in Portland,
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Oregon; the Fort Worth Distribution Center, mechanical shop and rubber shop in
Fort Worth, Texas; the Longview branch in Longview, Washington; the Longview
Distribution Center, mechanical shop and rubber shop in Longview, Washington;
the Appleton offices, branch and rubber shop in Appleton, Wisconsin; and the
Milwaukee branch and distribution center in Milwaukee, Wisconsin.
Applied considers the properties owned or leased to be generally
sufficient to meet its requirements for office space and inventory stocking. The
size of the buildings in which Applied's branches are located is primarily
influenced by the amount of inventory required to be carried to meet the needs
of the customers of the branch. All of the real properties owned or leased by
Applied are being utilized by Applied in its business except for certain
properties, which in the aggregate are not material and are either for sale or
lease to third parties due to relocation or closing of a facility. Unused
portions of buildings may be leased or subleased to others.
Generally, when opening a new branch, Applied will initially lease
space. Then, as the business develops, suitable property may be purchased or
leased for relocation of the branch. A new general-purpose office-storeroom
building may be constructed. However, Applied has no fixed policy in this
regard, and in each instance the final decision is made on the basis of
availability and cost of suitable property in the local real estate market,
whether purchased or leased. Applied does not consider any one of its properties
to be material, because it believes that if it becomes necessary or desirable to
relocate any of its branches and distribution centers, other suitable properties
could be found.
ITEM 3. PENDING LEGAL PROCEEDINGS.
--------------------------
In 1994, Dixie Bearings, Incorporated (now known as Applied Industrial
Technologies--Dixie, Inc.), a wholly-owned subsidiary of Applied, was served
with a First Amending and Supplemental Petition in a case captioned IN RE:
ROBERT LEE BICKHAM, ET AL. V. METROPOLITAN LIFE INSURANCE COMPANY, ET AL., 22nd
Judicial District Court for the Parish of Washington, Louisiana, Case No.
70,760-E, naming it as an additional defendant, along with over 50 other
defendants. The action was initially filed in 1993. The petition claims to have
been filed on behalf of approximately 1,118 persons or heirs of persons who were
allegedly exposed to asbestos-containing products while employed at the
Bogalusa, Louisiana, Paper Mill and/or Box Factory, currently operated by
Gaylord Container, Inc. Exposure is claimed to have occurred until approximately
1989. The plaintiffs claim that they or their decedents contracted
asbestos-related diseases, and where applicable, died as a result of exposure to
asbestos. Compensatory and punitive damages are sought, but no amount is
specified. Applied was subsequently served with Petitions in two related cases
pending in the same court as the BICKHAM case: IDA MAE WILLIAMS, ET AL. V.
METROPOLITAN LIFE INSURANCE COMPANY, ET AL., Case No. 72,986-F; and BENNIE L.
ADAMS, ET AL. V. METROPOLITAN LIFE INSURANCE COMPANY, ET AL., Case No. 72,154-B.
These cases, involving a total of approximately 124 persons or heirs of persons
who worked at the same Bogalusa facility, are essentially identical to the
BICKHAM case.
Preliminary information made available to Applied indicates that
Applied has been named a defendant in the foregoing cases only as a supplier of
certain products manufactured by others, which products allegedly contained a
small percentage of encapsulated asbestos fiber. Applied intends to
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defend these cases vigorously. Even if liability were assessed, Applied would
seek indemnification from its suppliers and its insurance carriers.
In 1992, a jury in a case captioned KING BEARING, INC., ET AL. V. CARYL
EDMUND ORANGES, ET AL., Superior Court of the State of California, County of
Orange, Case No. 53-42-31, awarded a $32.4 million judgment against King
Bearing, Inc., a wholly-owned subsidiary of Applied (but which has since been
merged into Applied). The verdict was based on contractual and other claims
asserted by various cross-complainants against King Bearing in a breach of
contract and unfair competition case initially filed by King Bearing in 1987.
The suit, which involved a former owner of King Bearing, was pending at the time
Applied acquired King Bearing in June 1990. All events relative to the judgment
occurred prior to Applied's purchase of King Bearing. On September 30, 1996, the
California Court of Appeal, Fourth Appellate District, affirmed the trial
court's grant of King Bearing's motion for a new trial. As a result, the matter
was remanded to the trial court for a new trial. Under the 1990 Stock Purchase
Agreement relative to the acquisition of King Bearing by Applied, Applied is
specifically indemnified by the ultimate parent of the former owner of King
Bearing (whose stockholders' equity exceeded $5 billion at June 30, 1997) for
any damages or losses relating to this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of Applied's security holders
during the last quarter of the fiscal year ended June 30, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT.
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The Executive Officers are elected for a term of one year, or until
their successors are chosen and qualified, at the organizational meeting of the
Board of Directors held immediately following the annual meeting of
shareholders. The following is a listing of Applied's Executive Officers and a
description of their business experience during the past five years. Except as
otherwise stated, the positions and offices indicated are with Applied, and the
persons were elected to their present positions on October 22, 1996:
John C. Dannemiller. Mr. Dannemiller is Chairman
(since January 1992), Chief Executive Officer (since January
1992), President (since October 1996) and a Director (since
1985). He is 59 years of age.
John C. Robinson. Mr. Robinson is Vice Chairman
(since October 1996) and a Director (since 1991). He was
President (from January 1992 to October 1996) and Chief
Operating Officer (from January 1992 to October 1996). He is
55 years of age.
Mark O. Eisele. Mr. Eisele is Controller (since
October 1992). He was Manager of Internal Audit (from 1991 to
October 1992). He is 40 years of age.
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Francis A. Martins. Mr. Martins is Vice
President-Sales & Field Operations (since July 1996). Prior to
that he was Vice President-Sales & Marketing (October 1994 to
July 1996) and Vice President-Marketing (from May 1992 to
October 1994). He is 54 years of age.
Bill L. Purser. Mr. Purser is Vice
President-Marketing & National Accounts (since July 1996).
Prior to that he was Vice President-National Accounts (from
January 1995 to July 1996) and Director of National Accounts
(from December 1994 to January 1995). Before joining Applied,
he was Vice President of Business Development for INVETECH
Company (from December 1992 to December 1994) and Vice
President of Sales for that company (from 1990 to December
1992). He is 54 years of age.
Richard C. Shaw. Mr. Shaw is Vice
President-Communications, Organizational Learning & Quality
Standards (since July 1996). Prior to that he was Vice
President-Communications & Public Relations (from July 1993 to
July 1996) and Director of Corporate Communications (from 1989
to July 1993). He is 48 years of age.
Robert C. Stinson. Mr. Stinson is Vice
President-Administration, Human Resources, General Counsel &
Secretary (since October 1994) and has served as Secretary
since 1990. He was Vice President-General Counsel (from 1989
to October 1994). He is 51 years of age.
John R. Whitten. Mr. Whitten is Vice
President-Finance & Treasurer (since October 1992). He was
Vice President (since 1985) and Controller (from 1981 to
October 1992). He is 51 years of age.
PART II.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS.
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Applied's Common Stock, without par value, is listed for trading on the
New York Stock Exchange under the ticker symbol APZ. The information concerning
the principal market for Applied's Common Stock, the quarterly stock prices and
dividends for the fiscal years ended June 30, 1997 and 1996 and the number of
shareholders of record as of August 20, 1997 is set forth in Applied's 1997
Annual Report to shareholders on page 25, under the caption "Quarterly Operating
Results and Market Data", and such information is incorporated here by
reference.
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ITEM 6. SELECTED FINANCIAL DATA.
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The summary of selected financial data for each of the last five years
is set forth in Applied's 1997 Annual Report to shareholders in the table on
pages 26 and 27 under the caption "10 Year Summary" and is incorporated here by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS.
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The "Management's Discussion and Analysis" is set forth in Applied's
1997 Annual Report to shareholders on pages 10 and 11 and is incorporated here
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The following consolidated financial statements and supplementary data
of Applied and its subsidiaries and the independent auditors' report listed
below, which are included in Applied's 1997 Annual Report to shareholders at the
pages indicated, are incorporated here by reference and filed herewith:
Caption Page No.
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Financial Statements:
Statements of Consolidated
Income for the Years Ended
June 30, 1997, 1996 and 1995 12
Consolidated Balance Sheets
June 30, 1997 and 1996 13
Statements of Consolidated
Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995 14
Statements of Consolidated
Shareholders' Equity for the
Years Ended June 30, 1997,
1996 and 1995 15
Notes to Consolidated
Financial Statements for the
Years Ended June 30, 1997, 1996
and 1995 16 - 22
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Independent Auditors' Report 23
Supplementary Data:
Quarterly Operating Results and
Market Data 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
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ON ACCOUNTING AND FINANCIAL DISCLOSURE.
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Not applicable.
PART III.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The information required by this Item as to the Directors is set forth
in Applied's Proxy Statement dated September 15, 1997 on pages 3 through 5 under
the caption "Election of Directors" and is incorporated here by reference. The
information required by this Item as to the Executive Officers has been
furnished in this Report on pages 9 and 10 in Part I, after Item 4, under the
caption "Executive Officers of the Registrant". The information required by this
Item as to Forms 3, 4 or 5 reporting delinquencies is set forth in Applied's
Proxy Statement on page 19 under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated here by reference.
ITEM 11. EXECUTIVE COMPENSATION.
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The information required by this Item is set forth in Applied's Proxy
Statement dated September 15, 1997, under the captions "Summary Compensation" on
page 7, "Aggregate Option Exercises and Fiscal Year-End Option Value Table" on
page 8, "Estimated Retirement Benefits Under Supplemental Executive Retirement
Benefits Plan" on page 8, "Compensation of Directors" on pages 13 and 14,
"Deferred Compensation Plan for Non-employee Directors" on page 14, "Deferred
Compensation Plan" on pages 14 and 15, and "Severance Payment Agreements and
Other Change in Control Arrangements" on pages 15 and 16, and is incorporated
here by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
----------------------------------------
OWNERS AND MANAGEMENT.
----------------------
Information concerning the security ownership of certain beneficial
owners and management is set forth under the caption "Beneficial Ownership of
Certain Applied Shareholders and Management" on page 6 of Applied's Proxy
Statement dated September 15, 1997, and is incorporated here by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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Information concerning certain relationships and related transactions
is set forth under the caption "Certain Relationships and Related Transactions"
on page 13 of Applied's Proxy Statement dated September 15, 1997 and is
incorporated here by reference.
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
---------------------------------------------------
SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------
(a)1. Financial Statements.
---------------------
The following consolidated financial statements of Applied, notes
thereto, the independent auditors' report and supplemental data are included in
Applied's 1997 Annual Report to shareholders on pages 12 through 23 and page 25,
and are incorporated by reference in Item 8 of this Report.
Caption
-------
Statements of Consolidated Income for the
Years Ended June 30, 1997, 1996 and 1995
Consolidated Balance Sheets
June 30, 1997 and 1996
Statements of Consolidated Cash Flows for
the Years Ended June 30, 1997, 1996 and 1995
Statements of Consolidated Shareholders'
Equity for the Years Ended June 30, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
for the Years Ended June 30, 1997, 1996
and 1995
13
15
Independent Auditors' Report
Supplementary Data:
Quarterly Operating Results and Market Data
(a)2. Financial Statement Schedule.
-----------------------------
The following Report and Schedule are included in this Part IV, and are
found in this Report at the pages indicated:
Caption Page No.
------- --------
Independent Auditors' Report 18
Schedule VIII - Valuation and
Qualifying Accounts 19
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions, are not
applicable, or the required information is included in the consolidated
financial statements and notes thereto.
(a)3. Exhibits.
---------
* Asterisk indicates an executive compensation plan or
arrangement.
Exhibit
No. Description
--- -----------
3(a) Amended and Restated Articles of Incorporation of Applied
Industrial Technologies, Inc. (filed as Exhibit 3(a)
to Applied's Registration Statement on Form S-4 filed
May 23, 1997, Registration No. 333-27801, and incorporated
here by reference).
3(b) Code of Regulations of Applied adopted September 6, 1988 (filed
as Exhibit 3(b) to Applied's Registration Statement on Form S-4
filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
4(a) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings,
Inc. (Delaware) filed with the Ohio Secretary of State on
October 18, 1988, including an Agreement and Plan of
Reorganization dated September 6, 1988 (filed as Exhibit 4(a)
to Applied's Registration Statement on
14
16
Form S-4 filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase
and Private Shelf Facility dated October 31, 1992 between
Bearings, Inc. and The Prudential Insurance Company of America
(as amended and restated) (filed as Exhibit 4(b) to Applied's
Registration Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated here by
reference).
*10(a) Form of Executive Severance Agreement between Applied and each
of its executive officers, together with schedule pursuant to
Instruction 2 of Item 601(a) of Regulation S-K identifying the
officers and setting forth the material details in which the
agreements differ from the form of agreement that is filed
(filed as Exhibit 10(a) to Applied's Registration Statement on
Form S-4 filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
*10(b) A written description of the Directors' compensation program is
found in Applied's Proxy Statement dated September 15, 1997,
SEC File No. 1-2299, on pages 13 and 14, under the caption
"Compensation of Directors", and is incorporated here by
reference.
*10(c) Applied Deferred Compensation Plan for Non-employee Directors
(January 1, 1997 Restatement) (filed as Exhibit 10(d) to
Applied's Registration Statement on Form S-4 filed
May 23, 1997, Registration No. 333-27801, and incorporated
here by reference).
*10(d) A written description of Applied's Non-Contributory Life and
Accidental Death and Dismemberment Insurance for executive
officers (filed as Exhibit 10(e) to Applied's Registration
Statement on Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
*10(e) A written description of Applied's Long-Term Disability
Insurance for executive officers (filed as Exhibit 10(f) to
Applied's Registration Statement on Form S-4 filed May 23,
1997, Registration No. 333-27801, and incorporated here by
reference).
*10(f) Form of Director and Officer Indemnification Agreement entered
into between Applied and its directors and its executive
officers, together with a schedule pursuant to Instruction 2 of
Item 601(a) of Regulation S-K identifying the directors and
executive officers executing such Agreements (filed as Exhibit
10(g) to Applied's Registration Statement
15
17
on Form S-4 filed May 23, 1997, Registration No. 333-27801,
and incorporated here by reference).
*10(g) Applied Supplemental Executive Retirement Benefits Plan (July
1, 1993 Restatement) presently covering 7 Applied executive
officers (as well as certain retired executive officers) (filed
as Exhibit 10(h) to Applied's Registration Statement on Form
S-4 filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
*10(h) First Amendment to Applied Supplemental Executive Retirement
Benefits Plan (filed as Exhibit 10(i) to Applied's Registration
Statement on Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
*10(i) Applied Deferred Compensation Plan (January 1, 1997
Restatement) (filed as Exhibit 10(j) to Applied's Registration
Statement on Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
*10(j) 1990 Long-Term Performance Plan adopted by Shareholders on
October 16, 1990 (filed as Exhibit 10(k) to Applied's
Registration Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated here by
reference).
*10(k) A written description of Applied's Management Incentive Plan
applicable to key executives, including the five most highly
compensated executive officers, is found in Applied's Proxy
Statement dated September 15, 1997, SEC File No. 1-2299, on
pages 9 and 10, in the Report of the Executive Organization &
Compensation Committee of the Board of Directors on Executive
Compensation, under the subcaption "Management Incentive Plan",
and is incorporated here by reference.
*10(l) Applied Supplemental Defined Contribution Plan (January 1, 1997
Restatement) (filed as Exhibit 10(m) to Applied's Registration
Statement on Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
10(m) Lease dated as of March 1, 1996 between Applied and the
Cleveland-Cuyahoga County Port Authority (filed as Exhibit
10(n) to Applied's Registration Statement on Form S-4 filed
May 23, 1997, Registration No. 333-27801, and incorporated
here by reference).
16
18
10(n) Plan and Agreement of Merger among Applied, I. C. Acquisition
Corp. and INVETECH Company dated as of April 29, 1997 (filed as
Exhibit 2(a) to Applied's Registration Statement on Form S-4
filed May 23, 1997, Registration No. 333-27801, and
incorporated here by reference).
11 Computation of Net Income Per Share.
13 Applied 1997 Annual Report to shareholders (not deemed "filed"
as part of this Form 10-K except for those portions that are
expressly incorporated by reference).
21 Subsidiaries of Applied at June 30, 1997.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
Applied will furnish a copy of any exhibit described above and not
contained herein upon payment of a specified reasonable fee which fee shall be
limited to Applied's reasonable expenses in furnishing such exhibit.
(b) Reports on Form 8-K.
--------------------
None during the quarter ended June 30, 1997.
17
19
INDEPENDENT AUDITORS' REPORT
----------------------------
Shareholders and Board of Directors
Applied Industrial Technologies, Inc.
We have audited the consolidated balance sheets of Applied Industrial
Technologies, Inc. and its subsidiaries (the "Company") as of June 30, 1997 and
1996 and the related statements of consolidated income, shareholders' equity,
and cash flows for each of the years in the three year period ended June 30,
1997 and have issued our report thereon dated August 7, 1997 (August 15, 1997 as
to Note 13); such consolidated financial statements and report are included in
your 1997 Annual Report to shareholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of the Company, listed in Item 14(a)2. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
August 7, 1997
18
20
APPLIED INDUSTRIAL TECHNOLOGIES, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(in thousands)
- --------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------- --------- --------- --------- ---------
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND FROM AT END OF
DESCRIPTION OF PERIOD EXPENSES RESERVE PERIOD
- --------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,400 $1,743 $1,743 (A) $2,400
YEAR ENDED JUNE 30 1996:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $2,300 $2,123 $2,023 (A) $2,400
YEAR ENDED JUNE 30 1995:
Reserve deducted from assets to
which it applies - allowance for
doubtful accounts $1,900 $1,710 $1,310 (A) $2,300
(A) Amounts represent uncollectible accounts charged off.
- --------------------------------------------------------------------------------------------------
SCHEDULE VIII
19
21
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
/s/ John C. Dannemiller /s/ John C. Robinson
- ----------------------------------------- -----------------------------------------
John C. Dannemiller, Chairman, John C. Robinson, Vice Chairman
Chief Executive Officer & President
/s/ John R. Whitten /s/ Mark O. Eisele
- ----------------------------------------- -----------------------------------------
John R. Whitten Mark O. Eisele
Vice President-Finance & Treasurer Controller
(Principal Financial Officer) (Principal Accounting Officer)
Date: September 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ William G. Bares /s/ Roger D. Blackwell
- ----------------------------------------- -----------------------------------------
William G. Bares, Director Dr. Roger D. Blackwell, Director
/s/ William E. Butler /s/ John C. Dannemiller
- ----------------------------------------- -----------------------------------------
William E. Butler, Director John C. Dannemiller, Chairman,
Chief Executive Officer, President and Director
/s/ Russel B. Every /s/ Russell R. Gifford
- ----------------------------------------- -----------------------------------------
Russel B. Every, Director Russell R. Gifford, Director
/s/ L. Thomas Hiltz /s/ John J. Kahl
- ----------------------------------------- -----------------------------------------
L. Thomas Hiltz, Director John J. Kahl, Director
/s/ John C. Robinson /s/ Dr. Jerry Sue Thornton
- ----------------------------------------- -----------------------------------------
John C. Robinson, Vice Chairman Dr. Jerry Sue Thornton, Director
and Director
- -------------------------------------
William G. Bares, as attorney
in fact for persons indicated by "*"
Date: September 25, 1997
20
22
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997
Exhibit
No. Description Reference
--- ----------- ---------
3(a) Amended and Restated Articles of Incorporation
of Applied Industrial Technologies, Inc. Note (a)
3(b) Code of Regulations of Applied Industrial
Technologies, Inc., adopted September 6, 1988. Note (b)
4(a) Certificate of Merger of Bearings, Inc.
(Ohio) and Bearings, Inc. (Delaware)
filed with the Ohio Secretary of State
on October 18, 1988, including an Agreement
and Plan of Reorganization dated
September 6, 1988. Note (c)
4(b) $80,000,000 Maximum Aggregate Principal
Amount Note Purchase and Private Shelf
Facility dated October 31, 1992 between
Applied and The Prudential Insurance
Company of America (as amended and
restated). Note (d)
10(a) Form of Executive Severance Agreement
between Applied and each of its executive
officers, together with schedule identifying
officers and setting forth material details
by which the individual agreements differ
from the form. Note (e)
10(b) A written description of the directors'
compensation program. Note (f)
10(c) Applied Deferred Compensation Plan for Non-
Employee Directors (January 1, 1997 Restatement). Note (g)
23
10(d) A written description of Applied's Non-Contributory
Life and Accidental Death and Dismemberment
Insurance for executive officers. Note (h)
10(e) A written description of Applied's Long-Term
Disability Insurance for executive officers. Note (i)
10(f) Form of Director and Officer Indemnification
Agreement entered into between Applied
and its directors and executive officers, together
with a schedule identifying the directors and
executive officers executing such agreements. Note (j)
10(g) Applied Supplemental Executive Retirement
Benefits Plan (July 1, 1993 Restatement)
presently covering 7 Applied executive
officers. Note (k)
10(h) First Amendment to Applied Supplemental
Executive Retirement Benefits Plan (July 1, 1993
Restatement). Note (l)
10(i) Applied Deferred Compensation Plan
(January 1, 1997 Restatement). Note (m)
10(j) 1990 Long-Term Performance Plan adopted
by Shareholders on October 16, 1990. Note (n)
10(k) A written description of Applied's
Management Incentive Plan applicable to
key Applied executives, including the
five most highly compensated executive
officers. Note (o)
10(l) Applied Supplemental Defined Contribution Plan
(January 1, 1997 Restatement) Note (p)
10(m) Lease dated as of March 1, 1996 between
Applied and the Cleveland-Cuyahoga County
Port Authority Note (q)
10(n) Plan and Agreement of Merger among Applied,
I. C. Acquisition Corp. and INVETECH Company
dated as of April 29, 1997. Note (r)
24
11 Computation of Net Income Per Share. Attached
13 Applied 1997 Annual Report to shareholders
(not deemed "filed" as part of this Form 10-K
except for those portions that are expressly
incorporated by reference). Attached
21 Subsidiaries of Applied at June 30, 1997. Attached
23 Independent Auditors' Consent. Attached
27 Financial Data Schedule. Attached
Notes: (a) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 3(a).
(b) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 3(b).
(c) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 4(a).
(d) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 4(b).
(e) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(a).
(f) Incorporated by reference from the Company's Proxy Statement dated
September 15, 1997, SEC File No. 1-2299, on pages 13 and 14, under
the caption "Compensation of Directors".
(g) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(d).
(h) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(e).
25
(i) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(f).
(j) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(g).
(k) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(h).
(l) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(i).
(m) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(j).
(n) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(k).
(o) Incorporated by reference from the Company's Proxy Statement dated
September 15, 1997, SEC File No. 1-2299, on pages 9 and 10, in the
Report of the Executive Organization & Compensation Committee of the
Board of Directors on Executive Compensation, under the sub-caption
"Management Incentive Plan".
(p) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(m).
(q) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 10(n).
(r) Incorporated by reference from the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No. 333-27801, at
Exhibit 2(a).